Mexico: Central Bank decreases rates in December
Latest bank decision: At its meeting on 18 December, the Central Bank decided to lower the target for the overnight interbank interest rate by 25 basis points to 7.00%. The move brought the cumulative reduction since early 2024 to 425 basis points, though rates are still high by regional standards.
Soft GDP and inflation outlook underpin cut: A further rate cut was motivated by the weak outlook for economic activity, and the Bank’s belief that both headline and core inflation will converge to the center of the 2.0–4.0% target range in the coming quarters.
Central Bank to ease further: Most panelists see more interest rate cuts by the end of next year, though future monetary easing will be more modest than in 2024 and 2025. U.S. trade policy towards Mexico is a key risk factor; additional U.S. trade restrictions could warrant additional monetary support.
Panelist insight: On the outlook, Goldman Sachs’ Alberto Ramos said:
“We now expect the MPC to be on hold at the next 2 meetings while looking for a window of opportunity to resume cutting. Pausing would be warranted by the fact that the ex-ante real rate is now close to 3.0% (within the r* 1.8%-3.6% band), core inflation has been accelerating and services inflation remains high and sticky, inflation is expected to reaccelerate in 1Q2026 (higher taxes and import tariffs), headline/core inflation expectations for 2026 have been deteriorating, and the outlook for additional FOMC rate cuts is uncertain.”
BBVA analysts said:
“We expect Banxico to remain on hold in the coming months, as it assesses the temporary shocks (excise taxes, tariffs on Asian imports) anticipated in early 2026. We believe it will still have scope to resume gradual rate cuts later in 2026, ultimately bringing the policy rate closer to the midpoint of the neutral range, around 6.5%.”